Moody’s has lowered Southern Water’s credit rating for senior secured debt from Baa1 to Baa2 after the company agreed to pay £126 million in penalties and compensation for failing to properly operate its sewage treatment facilities.
The ratings agency said the record fine imposed by Ofwat earlier this week will put additional pressure on the finances of Southern Water which is already facing a “tough regulatory price review”.
Moody’s noted that Southern Water is still subject to an ongoing investigation by the Environment Agency, which has levied “increasingly significant fines for pollution incidents” in recent years and could also file criminal charges.
It said the company has taken has significant steps to address the deficiencies identified by Ofwat but warned that “satisfying regulators that past problems have been fully addressed is likely to consume a significant amount of the company’s managerial focus.”
The rating remains under review for a further a downgrade, which would be triggered “if it appears that Southern Water will likely have insufficient financial flexibility to accommodate the proposed penalties and potentially additional environmental fines”.